2026 (1) TMI 399 - HC - IBC

Approved IBC s.31 plan's 'existing management' clause on pending mesne profits suit; claim barred against debtor, only old management liable

'Existing management' in an approved resolution plan under s.31(1) IBC was construed to mean the management of the corporate debtor immediately prior to ... CIRP - Resolution Plan approved (RP) - term “existing management” - Seeking extension of time for completion of the reference for mesne profits - HELD THAT:- Consequently, in the facts and circumstances of the present case, “existing management” as used in the RP will mean the management of the appellant immediately prior to the present management taking over change. RP allowed the suit to continue, subject to the monetary liability being met by the erstwhile management of the appellant, if there was any monetary liability found in such proceedings. It is trite law, that once a resolution plan is duly approved by the adjudicating authority under Section 31(1) of the Code of 2016, the claims as provided in the RP shall stand frozen. It will be binding on all stake holders. On the date of approval of the RP all claims which are not part of the RP shall stand extinguished. No persons will be entitled to initiate or continue with any proceedings in respect to a claim which is not part of the RP. Stakeholders of the corporate entity in respect of which a RP stands approved is governed and bound by the approved RP. So far as the appellant and the new management is concerned no claim against the appellant or the new management was allowed by the approved RP. No other claim, in the suit was allowed to be continued with and to be recovered from the erstwhile management of the appellant by the approved RP. Respondents/plaintiffs sought clarifications from the NCLT, Guwahati as to the approved RP and the continuance of the suit as against the appellant. The clarification application was disposed of by NCLT, Guwahati by the order dated November 29, 2018. NCLT, Guwahati did not modify the RP so far as the suit is concerned. In such circumstance, CS 16 of 2007 as it stands as against the appellant cannot proceed by reason of the sanctioned R P. In the event, the respondents/plaintiffs seek to continue to claim any financial relief in relation to the affairs of the appellant at the hands of the erstwhile management, the same may be recovered from the erstwhile management in terms of the RP. Respondents/plaintiffs may take appropriate steps in this regard in CS 16 of 2007 within a fortnight from date. In default of the plaintiffs/respondents not taking appropriate steps in CS 16 of 2007 within a fortnight from date, department will treat CS 16 of 2007 as disposed of. If steps are taken, CS 16 of 2007 will proceed in accordance with law as against the erstwhile management. In either of the two situations, CS 16 of 2007 is dismissed as against the appellant. 1. ISSUES PRESENTED AND CONSIDERED 1) Whether, after approval of a corporate resolution plan under the Insolvency & Bankruptcy Code, 2016, the suit for quantification of mesne profits could continue against the corporate debtor and/or its 'new/present management', or whether it was barred by the binding terms of the approved resolution plan. 2) What is the meaning and effect of the resolution plan stipulation that any 'financial recovery' in relation to the pending suit should be recovered from 'existing management', and whether this permits continuation of the mesne profits proceeding only against the erstwhile management rather than the corporate debtor/new management. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Post-approval continuation of mesne profits proceedings against the corporate debtor/new management Legal framework (as discussed by the Court): The Court applied the principle that once a resolution plan is approved under Section 31(1) of the Insolvency & Bankruptcy Code, 2016, the plan becomes binding on stakeholders; claims not forming part of the approved plan stand extinguished, and no person is entitled to initiate or continue proceedings in respect of such claims. Interpretation and reasoning: The Court noted that the claim relating to the pending suit was specifically recorded in the approved resolution plan and its annexures, and the plan expressly stated that there would be 'no claim' against the corporate debtor/new management in relation to the suit. The Court further held that the subsequent order of the insolvency tribunal (passed on an application by the plaintiffs) did not modify the approved plan and therefore could not be read as permitting continuation of the suit against the corporate debtor/new management contrary to the plan. Accordingly, the suit, as framed against the corporate debtor, could not proceed because the approved plan barred such continuation and recovery from the corporate debtor/new management. Conclusions: The suit for mesne profits/its quantification was held not maintainable against the corporate debtor and its new/present management in view of the approved resolution plan; the suit was dismissed as against the corporate debtor. Issue 2: Construction of 'existing management' and permissibility of proceeding against erstwhile management for recovery Legal framework (as discussed by the Court): The Court treated the approved resolution plan as binding and determinative of the permissible forum/target for recovery, and interpreted the plan terms in light of the contemplated and actual change of management under the plan. Interpretation and reasoning: The Court examined the plan clauses stating that any financial recovery arising from the pending matters should be recovered from 'existing management,' while simultaneously providing 'no claim' against the corporate debtor/new management. Giving 'anxious consideration' to the phrase 'existing management,' the Court found that the plan envisaged a change of management upon occurrence of specified events, and there was no dispute that such change occurred. Therefore, 'existing management' was construed to mean the management immediately prior to the present/new management taking over. On that basis, the Court held that the quantification of mesne profits could proceed only to the limited extent permitted by the plan-i.e., for establishing monetary liability, if any, recoverable from the erstwhile management, not from the corporate debtor/new management. Conclusions: The mesne profits quantification could continue only as against the erstwhile management, and any monetary liability found is to be realized from such erstwhile management. The plaintiffs were permitted to take appropriate steps in the suit within a specified time to proceed accordingly; failing such steps, the suit would be treated as disposed of, and in any event it stood dismissed as against the corporate debtor.